How to Protect Your Investment in the Outsourcing Process

More than ever before, the life sciences industry is faced with heavy pressure to increase productivity and lower costs. As an efficiency measure, outsourcing has become a prominent alternative to handling everything in-house. This outsourcing may be for a myriad of services such as clinical trial and development, business process, and human resources. By its very etymology, out-source means to push something out of your control to an outside party or source. You are essentially relegating control over to that party, entrusting them to effectively manage the delegation and produce desired results. Often times, the entrustment creates ambivalence concerning your vested interest in the outsource function. How can you ensure that your investment is protected - or ensure that the outsourcing brings about the added value expected?

Identifying Stakeholders And Balancing Of Interests

The first part of the inquiry for protecting your investment is to identify the affected parties. This approach will be focusing on direct relational connections with intra-company stakeholders and the indirect relational connections with inter-company stakeholders. These stakeholders should be at the forefront of your decision process because protecting their vested interest is often times causally intertwined with that of the company.

Depending on the structure of the company, your intra-company relationships will include a combination of the following people: investors, shareholders, and/or employees. However, some decisions may present an advantage to the company in the short-term, obviating the needs of the intra-company stakeholders for stable, financial growth and development. Suppose that you made a decision to outsource the workforce responsible for contracting for clinical studies. When an outsourced staff, with less enthusiasm than typical of employees, alienate research universities from enrolling in a particular study - or pays prices above fair market value for procedures which causes your company to fall under governmental scrutiny - the short term reward of cost-saving is of no consequence.

Next, you must identify the inter-company stakeholders. This group includes two subsets of people: (1) the consumers made up of existing and prospective clients; and (2) the enforcers whose purpose is to protect the consumers. Depending on the type of outsourcing, the inter-company stakeholders may not always be involved. Nonetheless, it is important to be aware of their relative interests. The consumers' interest is an important consideration in outsourcing because they are the ultimate object of your company's function. Their needs are the mandate that your company fulfill. Their best interest is always centered around gaining the benefit of your products. This is not always a price function, but a trust factor that you are making effective therapies or products accessible to them. When the decision to outsource could, for example, affect the reliability of the research of the small protein molecule or raise concerns that studies were conducted under less than ideal circumstances, the consumer's interest is in jeopardy. Their interest is closely tied to that of the enforcers, whose motivation is to police the bargain between the parties involved. They are the gatekeepers whose sole interest is to insure that your business decisions will not be the detriment of intra and inter- company stakeholders.

Communication Strategies

Once you know the affected parties, you will need to develop a communication strategy. This strategy will allow you to maintain communication lines to ensure that affectation of the outsourcing is well considered and that expectations are reasonable. The threshold point of communication is to set clear objectives of the outsourcing among the decision makers. This will require that you identify the goals and justifications for the outsourcing in context of the interests of relevant intra-company stakeholders. It is critical that you don't adopt a protectionism viewpoint that justifies excluding the intra-company stakeholders. These stakeholders should be kept in the loop, and not simply be the subject of notification for the outsourcing. Instead, consider including them as a part of the communiqué for the outsourcing. Provide them an opportunity to weigh on the decision that will affect their investment. They can bring value and insights to the decision process in many ways. For example, a small company who is considering outsourcing may benefit from existing relationships of investors to a reputed outsource vendor. A well-rounded dialogue of the outsourcing should include some of the following topics: (1) Function being outsourced; (2) Scope of outsourced work; (3) Functional knowledge transfer; (4) IT infrastructure and support required and (5) Costs reduction expectations.

Effective Risk Management

The final consideration is to create an effective strategy to manage the risks that the outsourcing will present. The challenge presented will vary depending on the nature, scope, and extent of the outsourcing being considered. Accordingly, the most effective strategy for managing the varying levels of risks must be a customized approach. This customized approach may include some elements or a combination of the considerations outlined below.

1. Outsourcing Advisory Board: The most successful outsourcings include an effective risk management team. This team will be responsible for evaluating the existing and ongoing risks of an outsourcing. You may create an advisory board made up of the following key people: company executives, attorneys, intra and inter- company stakeholders.

1. Outsourcing Plan Of Action: Develop an outsourcing plan with the objectives, scope of work, sustainability timelines, and applicable risks assessments. This plan should be reviewed and vetted by the outsourcing advisory board.

1. Data Or Intellectual Protection: Ensure proprietary and competitive advantage of the company's intellectual property rights by setting expectations, developing strategies, documenting, and integrating procedures as applicable.

1. Regulatory Oversight: Maintain transparency to ensure regulatory compliance with applicable laws and regulations. Delegating through outsourcing does not necessarily guarantee absolution of accountability to regulatory agencies and shareholders.

1. Objectives And Risk Audits: Create a schedule for performance assessment of the outsourced function and risk audits. Perform periodic risk and compliance audits with documented results for transparency.

1. Contingency Plan: Develop a contingency plan to ensure that you have an exit strategy in the event that your investment of intellectual property and the good-will valuation of the company are compromised.

Ultimately, protecting your investment will require a commitment of your internal resources to manage the outsourcing process. It may sound counterintuitive that you would need to manage the very function that you have outsourced. The countervailing truth is that the outsourcing itself is simply a catalyst for your company's needs for managerial development of sustainable relationships. That is the essence of outsourcing. Although costs have been identified as the driving force for outsourcing, the reality is more intrinsic. It is a matter of developing and maintaining relationship with a third-party vendor who provides services for your company, obviating the needs to utilize your internal resources.

In the event that your internal resources are not best suited for managing the relationship with the outsource vendor, you need to balance the relevant interests and decide whether some additional support may be needed through relationship management service providers. These providers offer myriad of services geared towards management of the outsourcing process. Management of the relationship with the outsource vendor is critical to ensuring that the expected value is added while at the same ensuring that it does not compromising the existing value. Whether conducted internally or through service providers, the most effective approach is to develop a plan for managing the outsource vendor relationship, and balance all relevant interests for a unified purpose of protecting your valued investment.